A good Fight Alone

Korea’s four major oil refiners are expected to post seven trillion won (US$6.26 billion) in annual operating profit this year.
Korea’s four major oil refiners are expected to post seven trillion won (US$6.26 billion) in annual operating profit this year.

 

It is highly likely that the Korean oil refinery industry will continue to put up a good fight alone in the second half of this year after the first half among Korean industries. This year, Korea’s four major oil refiners are poised to re-create a super-boom in five years since 2011 by posting seven trillion won in annual operating profit for the first time.  

According to the oil refinery industry, total operating profit of Korea’s four major oil refiners (GS Caltex, SK Innovation, S-OIL and Hyundai Oil Bank) are expected to break through six trillion won (US$5,37 billion) within the third quarter of this year and surpass seven trillion won (US$6.26 billion) by year’s end. This expectation is strengthening. 

The four major oil refiners already posted 4.681 trillion won (US$4.189 billion) in operating income in the first half of this year. The four chalked up the highest total operating profit of 6.859 trillion won (US$6.138 billion) in 2011. 

The reason for a high expectation for the oil refiners’ business scores is that crude oil refinery margins, international crude oil prices and prices petrochemical products which are the yardstick of profitability in the oil refinery sector have been on the uptick since the start of September.  

The benchmark Singapore complex gross refining margin (GRM) fell to the US$ 2-per-barrel level last month and recovered to US$7 on September 22. The oil refinery industry regards four to five dollars per barrel as the break-even point of refining margins. In addition, international oil prices have been stably staying in the second half of the US$ 40-per-barrel level over the past three months.  

Demand for petrochemical products is outweighing a supply of them. Petrochemical products belong to the non-oil refinery sector. In the case of paraxylene (PX), a main product of Korean oil refiners, the PX spread devoid of prices of naphtha, a material for PX stood at US$380 per ton in the second quarter of this year and surpassed US$420 per ton early this September. This means demand for PX increased that much.

Even until the end of this past summer, Korean oil refiners were concerned that Brexit and worries over a glut will put a big damper on their business activities in the second half of this year. But a series of oil refinery facility repairs and maintenance around the world sparked off a sharp increase in demand for oil refinery products compared to their supply in the third quarter of this year. Accordingly, Korean oil refiners are heaving a sigh of relief.     

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